CHINA - THREAT OR PROMISE?

CHINESE FRUIT AND VEGETABLE TRADE BALANCE BEARS WATCHING

Florida oranges. Georgia peaches. Chinese apples. Chinese apples? Yes, indeed. China's fruit and vegetable exports have increased quite a bit in the last decade, most notably in apples and apple juice. It's now the world's largest exporter of apple juice, and exports of fresh apples have passed those of the U.S.

Hot on the heels of apples are several vegetables, followed by fruit other than apples. Many are processed products and other goods that don't yet compete with U.S. goods, but that's changing.

The Chinese are diversifying. They're growing and marketing items we don't traditionally associate with that country. Exports on onions, carrots, cauliflower and broccoli grew from just a few thousand tons in 1992 to a combined total of more than 1 million tons in 2004. China's exports of fresh vegetables have begun to compete with U.S. exports to Asian markets, and in some cases U.S. market shares of those items have slipped.

Chinese vegetables compete with U.S. products primarily in Japan and South Korea. China surpassed the U.S. as the leading fresh vegetable exporter to Japan in 1996. It is the dominant supplier to Japan of imported garlic, peas, leeks, radishes and mushrooms. Carrots, onions and broccoli are also displacing U.S. products to an extent.

There are several logical reasons for this. Those are: a) low costs, b) a growing processing industry, and c) policies that encourage fruit and vegetable production. Materials and labor are cheap. And very importantly, market reforms in the late 1970s gave farmers more freedom in planting decisions. Since fruits and vegetables yield high returns per acre of land, many of the nation's farmers have opted to go in that direction. Most own relatively small parcels, and getting the most from that land is a priority.

SOME 'GROWING' STATISTICS

Fresh fruit and vegetables exports from China nearly tripled between 1992-94 and 2002-04. Most go to Japan and South Korea, as do processed foods. Japan and South Korea are points of competition between the U.S. and China. Taiwan does not permit entry of most Chinese fresh produce for political, economic and food safety reasons. Hong Kong has a unique relationship with China because of its return to Chinese sovereignty.

China's share of Japan's import market for fresh vegetables grew from less than 10 percent in 1989-91 to 37 percent in 2002-04. China has substantially increased its market share for nearly all of Japan's top 10 fresh vegetable imports, including many commodities the U.S. exports.

Major U.S. exports to Asia are: oranges, grapes, grapefruit, apples, broccoli, onions, cauliflower, asparagus, and head lettuce.

SO WHERE'S THE PROMISE?

The country's producers have several things working against them.

Low production costs don't necessarily mean low final costs. Lack of marketing and distribution infrastructure causes post-harvest loss. One Chinese official quoted in a USDA report said that about 30 percent of vegetables in China are lost due to poor storage and 90 percent of vegetables arrive at market with inadequate grading, washing or packaging.

Another limitation is that Chinese currency is undervalued. That could change. An appreciation of the yuan could narrow China's price advantage on international markets.

In addition, new inspection criteria on chemical residues on food imported into Japan took effect May 29, and will be hard on Chinese vegetable farmers, especially those producing green onions.

China is making great strides to address all of these issues, but it is a time-consuming process. It's made investments in the quality and marketing of its fruit and vegetable exports and in upgrading port facilities.

Processed potatoes - mainly french fries - account for a large percentage of China's imports of U.S. processed fruits and vegetables.

Another issue is that the upper classes are growing in China, which means the domestic market for fruits and vegetables will expand. As demand (and incomes) increase in China, much of these products now exported would need to be redirected toward the domestic market.

This domestic demand could grow to such an extent that homegrown supplies couldn't keep up. There are signs of that already. China expanded its global import value of fruits and vegetables more than nine-fold since the early 1990s to reach $910.2 million in 2002-04 in spite of trade barriers. China is now in the top 15 largest importers of U.S. fruits and vegetables.

Fresh fruits and processed fruits and vegetables are the largest categories. U.S. share of China's fresh fruit import market grew from less than four percent to nearly 15 percent due to growing upper income class and relaxing of trade barriers. Grapes, oranges and apples are at the top of the list. Processed food imports are growing because of the westernization of the Chinese diet. Processed potatoes (mainly French fries) and frozen sweet corn accounted for 83 percent of China's imports of U.S. processed fruits and vegetables in 2002-04.

So the situation bears watching. "We haven't lost market share yet but the potential is present and the opportunity for lost markets is on the horizon," said Danny Raulerson, FFVA director, Membership & Marketing Division. Others see a more rosy future for American exports. Time will tell.

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